Seeing that our banking system can only work smoothly so long as both Lombard Street and Threadneedle Street work in harmony, it follows that in time the link which connects the large banking companies will become stronger, and the relations between them pleasanter, because, in business as elsewhere, friendship is centred in the head rather than in the heart. The banks must draw closer together, because, if they do not, their system is unworkable; and, as they are now compelled to adopt certain precautions in order to protect themselves against panic on the part of their customers (who in that respect are their enemies), it is only natural that they should take steps to put an end to excessive competition, which weakens their position and prevents their acting together at a moment when united action alone can restore confidence in their ability to meet their liabilities.
We all know the stale apothegm: "Self-preservation is the first law of nature." It is the religion of the world. We can see the law at work among our friends, but, being polite, we refrain from comment—though if we be wise, we reflect; for here is the great unpreached gospel which governs the actions of men. Self-preservation clearly dictates that the banks cannot afford to allow competition among themselves to weaken the system upon which their safety depends; and, should the danger become pronounced, they are certain to combine against the public in order to at least agree to certain minimum rates below which none will do business.
It may be said: You yourself were the first to point out that certain customers are in a position to make terms with the bankers, and to advise them to do so. That is true enough; and so long as the banks are divided amongst themselves this is possible; but it by no means follows that, because the customers can make certain bargains this year, they will be able to make similar arrangements next, for the banks have their remedy, and when the right time comes they will not neglect to take it.
We have dissected that complex machine, which is called the Money Market, and of which the Bank of England is the heart. As each unit is dependent upon the strength of the whole, no bank should be allowed to trade upon the credit of the rest, for obviously it cannot exist outside the system during a time of stress unless it possess an adequate reserve of cash. Therefore each unit ought to bear its fair share of the burden when the sun is shining, and, if it refuse, it should be made to take the consequences when the storm bursts.
The closer our banking system is examined the stronger becomes the conviction that the interests of all the banks are identical, and that, therefore, if banking is to be conducted in this country with comparative safety, every bank should be compelled, either by the law of the land or by public opinion, to keep a fair reserve in legal tender against its liabilities. Further, the true interests of the banks are the same as those of the public—for the good business man is always a cautious man, and if he takes the trouble to study the risks to which a banking business is exposed, he will hardly care to place his money with a company unless it be well prepared to face those storms to which its environment peculiarly exposes it.
Under our one reserve system the banks must either stand or fall together during a crisis. The system, therefore, requires the support of all; consequently, the duties or obligations of each bank should be clearly defined, and this can only be done by an Act of Parliament or by an understanding between the banks. The closer the banks draw together the safer is our system of banking.
CHAPTER XVII.
Bank Stock.